When New Lawyers (and a Few Old) Leave Money On The Table For All the Wrong Reasons

Money on the table

If I hear one more lawyer tell me they referred out a case to another lawyer ‘just because’ and maybe that lawyer will send something their way down the road, I want to scream, ‘You are leaving money on the table.’  Do you not understand what a referral fee is?  Do you not understand the value of this fee to provide you some financial stability for your practice?

Yes, yes.  I know many jurisdictions don’t allow referral fees between lawyers and some practice areas do not allow referral fees.  But what if you practice in a jurisdiction which does permit it?  What happens when you, a practicing T & E lawyer, send off a medical malpractice case that settles for $2 million dollars and roughly a $600k statutory attorney’s fee for which you could have and should have gotten one third, or $200K, but ‘no big deal’?  Maybe they’ll send you a $2k estate plan down the road, right?

You’re leaving big money on the table and you don’t even understand it. As professionals, we do not practice in a vacuum.  We rely upon cross-marketing our clients with our colleagues in an effort to build our practices, our network, our finances.  And a large part of this exchange is the referral fee.

A referral fee can result because you simply don’t handle the work the potential client needs.  Or it can result from a case being too big for you to do alone. Or it can arise from you taking a break from actual practice for a while but someone came to you for help and you have an opportunity to field it out and still generate income.  In any of these instances, another lawyer is in the mix and in any of these instances, if your jurisdiction and the practice area allows, you are entitled to a referral fee.  And here’s the kicker.  If it’s a good/great case, the receiving lawyer will only be too happy to pay you a referral fee without any question.

Referral fees are an established hallmark of the legal profession and it is even more important given the economic times we are experiencing and the advent/intrusion of technology.  I’ll share a story from over a decade ago that pretty much changed my financial life.

My husband’s co-worker’s sister was diagnosed with breast cancer and she kept saying she told her OBGYN much earlier to check her out but the Doctor thought she was just a complainer and didn’t.  While she was pregnant with their second child, she was ultimately diagnosed with breast cancer, a large, undetected tumor in her breast.  Even though the evidence was great it could be a medmal case, she didn’t want to talk to an attorney though my husband’s co-worker begged her to because she now had two young children who would benefit should she die (which she sadly did). They asked me to talk with her.  I did not practice medical malpractice. But she trusted me because of the relationship.  I helped her to understand the benefit of pursuing this to help her family and to put a large black mark on the Doctor, maybe even get her license pulled and to protect others. I consulted with several reputable medical malpractice attorneys until I found one I believed would do the best job and we met with her.  I also made it clear to the client that if she felt at all uncomfortable or didn’t like the attorney, I would find her a new one.  It turned out she did, which was good because the lawyer was probably the best in the state. Rules required the referral be in writing and disclosed to the client, which it was and the lawyer gladly agreed to it as a matter of course.  I stayed on in the capacity of go-between for communications and documents, etc. Long story short: the case settled for $1.8 million. You do the math. With the money received, I paid off all my law school loans with money to spare. Life-changing.

Let’s face it.  The profession puts their collective nose up at anything that smacks of ‘business’.  And it is hard for some to reconcile doing ‘business’ with doing what’s best for the client which includes doing what’s right regardless of financial consideration.  And they have a point. Lawyers can get in the habit of referring to a lawyer who is their friend and referrals are on a handshake without disclosure to the client…but that lawyer friend, while best for you, may not be the best for the client. So, the answer is that the law places rules and regulations on how and when attorneys may give a referral fee.  As I stated before, these rules vary from jurisdiction to jurisdiction and it is incumbent upon you to know the rules where you practice because it can vary from a complete and total prohibition to total assumption of joint responsibility for the outcome.

But this article is more about the mindset of the new referring attorney who is generally gun shy about referring out a case for a classic ‘referral fee’.

All I can say is do not be shy! You are in business.  Part of your legal services business is being trusted counsel and this includes walking business you cannot or do not handle to qualified attorneys who do the work. Sometimes, a referral fee may not be the compensation you want if it is small.  But that is a decision you can make at the time.   You have to remember that you are entitled to be compensated accordingly for providing this business the attorney would not have gotten otherwise if this is what you do choose.  Learn what you can expect as a referral fee.  Have it put in writing by the receiving attorney. And a good attorney won’t even bat an eye when you ask about the referral arrangement.  (Hint:  If they do, walk the case to someone else.) Both attorneys should communicate the arrangement with the client and you should stay engaged as appropriate in the matter. In the end, professional referral fees can be an incredible source of income and change your life, as it did mine.  Be responsible, ethical and refer to the best qualified lawyer for your client’s matter and you can build a practice that will support you for the long haul.

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2 comments on “When New Lawyers (and a Few Old) Leave Money On The Table For All the Wrong Reasons

  • Great point Susan.
    In fact, this is exactly what I’ve shown lawyers who don’t handle med mal cases to look for when I lecture. The title of my talk (at the NYC Bar Assoc.) is Medical Malpractice Law for the Non- PI attorney.
    I start out by telling these lawyers that at some point in their career they will encounter someone who has a legal problem. A problem they don’t handle.
    Exactly in the manner you described in your article.
    Then, you have to decide what to do with them once you have an inkling there might be a valid case.

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